We’re in a mess. Millions of Americans are losing their jobs all at once, and many businesses are already struggling to survive widespread shutdowns caused by coronapocalypse. Retirement accounts are taking a beating too, with stocks down nearly 30% in just one month.
This recession, however, probably won’t be as punishing as the last one, which nearly wrecked the global financial system and left millions of Americans unemployed for years. We’re very early in the coronarecession, and competent government intervention is crucial. But early stabs at gauging the depth and duration of this recession should be modestly reassuring to folks who remember how traumatic the last recession was.
It’s clear people should brace themselves: The next couple of months are going to be terrible. Wall Street economists are predicting a plunge in GDP growth in the second quarter, ranging from 10% to 15%, on a year-over-year basis. That would be the worst quarter in post-war history, worse even than the fourth quarter of 2008, when GDP shrank by 8.4%.
Initial filings for unemployment insurance are going to skyrocket, and forecasts for job losses range from 3 million to 5 million by summer. That’s awful—but not as bad as during the Great Recession. Back then, the number of unemployed rose by 8.6 million from 2007 to 2009. If estimates of the current situation hold, the number of newly jobless might only be half as many as last time.
A complex financial meltdown in 2008
The Great Recession lasted for 18 months, the longest downturn since the 1930s. Real GDP shrank in five quarters. And once the recession ended, it took nearly a decade for the economy to return to normal. Total employment didn’t reach pre-recession levels until 2014, the weakest labor recovery in modern times. And many unemployed workers ended up earning less than before when they finally rejoined the workforce.
There’s reason to think this recession won’t last nearly as long as the last one, or savage workers as badly. This time, a recovery depends almost completely on one thing: containing and then eradicating the coronavirus. That’s obviously a challenge, and developing a vaccine can take 18 months. But it does allow governments around the world to focus in unison on a single shared goal. The Great Recession, by contrast, was a complex financial meltdown with many intertwined causes that took years to unwind. The job now is more straightforward.
The coronarecession is not a banking crisis. That’s hugely important. Last time, Washington had to rescue the banks before helping anybody else. Banks are solvent this time, and that stability will actually help speed a recovery. The corporate bailouts Congress is now engineering don’t target any money at banks. Whew.
Those bailouts are likely to target many worker protections that Congress overlooked during the last recession. Bailouts are likely to include incentives or even a requirement for companies to keep payrolls intact and continue offering benefits. That would be new, and it would halt at least some of the mass layoffs companies must resort to when their revenue dries up.
That could still leave a lot of pain for hourly workers who get their hours and pay cut, and independent contractors whose jobs will simply disappear. The virus itself is the biggest wild card. Dramatic event closures and enforced isolation, now in effect in California and New York, can slow the spread of the virus and buy time while researchers work on a vaccine and hospitals stock up on medical equipment.
With sound policymaking and some luck, the worst, economically, could be over by summer, with a recovery kicking into gear by the end of 2020. If a vaccine arrives in 2021, that could mark the beginning of a return to normal. But getting there does require doing the right things now.
Rick Newman is the author of four books, including “Rebounders: How Winners Pivot from Setback to Success.” Follow him on Twitter: @rickjnewman. Confidential tip line: firstname.lastname@example.org. Encrypted communication available. Click here to get Rick’s stories by email.